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Interest waiver on loans … who does it really help?

Asia Analytica
Asia Analytica9/23/2021 3:41 PM GMT+08  • 9 min read
Interest waiver on loans … who does it really help?
In summary, the call for an interest waiver is short-sighted and irrational, both economically and mathematically speaking.
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Malaysian banks are being pressured to waive three months of interest on personal loans for those in the B50 category (bottom 50% income group) who have opted for the second round of loan moratorium. When news of this latest measure broke the previous week, it was met with diverging reactions — for those expected to benefit, it was a positive surprise but, for banks and their investors, it was understandably negative.

We fully appreciate that the B50 needs more help, as they are disproportionately affected by the pandemic in terms of loss of jobs and incomes, owing to the economic shutdown. Let us be honest, though; the interest waiver is a populist move — it gives the impression of helping millions of lower-income households and, in the process, earning some political brownie points. But make no mistake, this action comes at a very high price — the cost of the fallout will be far higher than the gains achieved.

For starters, it will cast doubt on the integrity of contracts and, once a precedence is set, whether such similar requests will not be repeated in the future. For that matter, will the interest waiver be extended beyond three months? There are now calls to expand the waiver to include small and medium enterprises. Where does it end?

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